Invitation Homes’ year-end results may signal what’s ahead for the rental home market
Real Estate

Invitation Homes’ year-end results may signal what’s ahead for the rental home market

The residential real estate market’s post-pandemic glow is ebbing.

Beyond last year’s tough interest rate environment, suppressed home sales and shrunken multifamily construction, the rapid-fire demand for build-to-rent and single-family rental homes, popular among consumers and investors in recent years, appears to be ticking down.

John Olsen, chief financial officer of Dallas-based Invitation Homes, one of the nation’s largest rental home companies, sees it as a return to a more normal rent-growth environment.

“We are looking at the pre-pandemic experience as sort of our model for how we think the curve is going to develop over time,” Olsen said during the company’s year-end results call this week with analysts and investors.

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A slowdown in the single-family rental space indicates there could be a tempering to rent hikes that consumers have felt for the last few years. It also could give companies like Invitation Homes a better sense of what’s ahead.

Invitation Homes, launched by Blackstone before the investment giant exited in 2019, specializes in single-family home leasing. Demand for rental homes saw it strike a series of joint venture agreements with firms such as Rockpoint Group and PulteGroup to grow its portfolio.

Invitation Homes isn’t alone in leaning into rental homes. Investment firms and developers joined in, typically focusing on high-growth markets like Texas, Florida, North Carolina and Arizona. While it created a congested market, it also spurred opportunities for a more seasoned operator like Invitation Homes.

The company recently branched into providing management services to portfolio owners, citing attractive profit margins for the new revenue stream. The move brought 14,000 additional households under the company’s management. The homes are primarily located in Dallas, Atlanta, Phoenix, Orlando, Tampa, North Carolina, and South Carolina.

The breadth of Invitation Homes’ portfolio offers a unique lens into trends set to permeate beyond the company’s book of business. Here are key takeaways from its 2023 results.

Real estate’s seasonal cycles are back

Invitation Homes instructed its team to negotiate with new and renewing renters alike through concessions to help keep occupancy rates high late last year, a nod to the historically slower winter period for residential real estate.

Migration to certain markets, like Dallas-Fort Worth, in addition to residents seeking more space, during and after the few years following the pandemic aided in bucking traditional rental trends. It essentially created a secular time frame for renters.

Invitation Homes is once again gauging a rental market that slows in the fourth quarter and picks up again in the first quarter right after the Super Bowl, said Charles Young, its president and chief operating officer.

“So this is in line with what we’ve done historically,” he said. “During the pandemic, we did not see that seasonal pattern. And what we’re recognizing now is we’re back to that seasonal pattern.”

CEO Dallas Tanner said he likes the company’s chances for capturing demand in 2024.

“All things being equal, we do also want to be sensitive to the fact that we are in sort of a slowing growth environment macro-wise for the country and just be sort of modestly aggressive in our approach,” Tanner said.

The build-to-rent space is getting crowded

Invitation Homes is sensing more competition from other build-to-rent contenders. Olsen noted that particular trend in markets like Phoenix and Las Vegas.

Build-to-rent portfolios with 100 to 200 homes want to lease up and take an aggressive stance to get momentum going, and that creates competition if a project is within driving distance, Young said.

Occupancy can be negatively affected if a number of build-to-rent projects are simultaneously hitting the same community or metro area, he said.

Long term, the company remains confident in build-to-rent and how it couples alongside its investments in infill spaces near job centers.

Build-to-rent is “fantastic because it’s a great experience for the residents with the amenities that come with it,” Young said. “For us, it’s going to be less capital on road repair maintenance over the short period of time. This is a balance that you get with the opportunity to take on different projects.”

In the meantime, the firm is taking a more measured approach to rental rate growth in its guidance.

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